House Democratic study criticizes idea of leasing Pa. Turnpike

Monday

Mar 3, 2008 at 2:59 PM

HARRISBURG (AP) — A Pennsylvania House Democratic study concludes that leasing the Pennsylvania Turnpike holds major risks and says the plan to add tolls to Interstate 80 is preferable and more cost-effective.

MARK SCOLFORO

HARRISBURG (AP) — A Pennsylvania House Democratic study concludes that leasing the Pennsylvania Turnpike holds major risks and says the plan to add tolls to Interstate 80 is preferable and more cost-effective.

The 65-page study, obtained by The Associated Press a day before its planned release by Democratic leaders, said the billions of dollars in upfront payments could prove too tempting for the General Assembly.

Lawmakers may one day want to divert some of the cash away from projects such as roads, bridges and mass transit, and it would take an amendment to the state constitution to prevent the money from being spent for other purposes, it said.

“There are many areas that I can cite in my 25 years here where we have not been very good stewards of a large amount of cash sitting around,” said Rep. Joseph Markosek, D-Allegheny, chairman of the Transportation Committee.

The study said “aggressive toll increases” are likely to result from a turnpike lease, described financial assumptions in previous studies as too rosy and warned the state probably would not be able to reclaim the road at no cost if the operator were to go broke.

“By immediately placing billions of dollars in new debt on the turnpike enterprise, a privatization increases the likelihood of financial distress,” the study said.

The Turnpike Commission’s ability to issue tax-exempt municipal bonds gives it a significant advantage over someone operating the roadway for a profit, according to the study.

“On a purely financial decision-making basis and given the same expected future toll-revenue assumption, the toll road operator with the lowest borrowing cost or lowest weighted average cost of capital should win every time,” it said.

The I-80 tolls, which require approval from federal regulators, would be accompanied by considerably higher tolls, starting with a 25 percent boost in 2009. The law passed last summer, known as Act 44, is designed to raise $83.3 billion over 50 years.

Turnpike Commission chairman Joe Brimmeier told a state legislative hearing Monday that the federal review of Pennsylvania’s application for permission to install as many as 10 toll collection sites along I-80 “is going to be a lengthy process.”

“This is also a learning process for the Federal Highway Administration, as it is for us,” he said.

The plan to toll I-80 has generated bitter opposition from people who live along the east-west highway, and Democratic Gov. Ed Rendell’s administration is currently working with 14 groups interested in bidding on a long-term turnpike lease.

Rendell spokesman Chuck Ardo said bids will be taken within a few weeks, and the governor expects to submit the best leasing offer it gets to the Legislature.

Ardo said the administration is convinced a turnpike lease is the best, most lucrative option.

“The tolling and maintenance schedules are going to be negotiated to ensure that the commonwealth has control of both,” Ardo said.

“In as far as the other details of the lease, they still need to be worked out, and until that happens, there’s really no way to tell exactly what lease terms may be agreed to.”

The House Democratic study, “For Whom the Road Tolls: Corporate Asset or Public Good,” was written by Gary J. Gray and Patrick J. Cusatis, Penn State University finance professors, and John H. Foote, a senior fellow in Harvard University’s Kennedy School of Government.